The Scottsdale City Council on Tuesday got its first look at key estimates in the upcoming budget, which showed the possibility of a slight surplus, if any at all.

“This is, in a sense, the kickoff of the budget season,” City Treasurer David Smith said.

In one of the bigger decisions, council members will decide whether to accept a maximum-allowed 2 percent increase in the city’s primary property-tax levy.

The move would boost revenue Scottsdale collects from the tax.

The city establishes the levy, which represents the total amount collected. The tax rates owners pay, however, could actually decrease if property values trend upward as the region’s real-estate market continues its recovery.

The proposed budget, due out in March, will precede the city’s final budget, which the council usually adopts in June. The budget will cover the fiscal year from July 1 to June 30, 2014.

In addition, the council could go back and “recapture” property-tax increases that members declined to take in 2011 and 2012.

Mayor Jim Lane called the hikes a “non-starter.”

“I think, at the very least, we’re not looking at any kind of ‘catch up,’” he said.

Vice Mayor Suzanne Klapp agreed that the city should not reverse the council’s prior decisions regarding the increases.

“That wasn’t the spirit of the way we voted,” she said, adding that she was willing to consider the increase for the 2013-14 budget but was not committing to it.

Without the property-tax increases, a projected surplus in budget estimates now might be effectively eliminated, though numbers likely will change in coming months as city officials hammer out clearer estimates.

Figures presented Tuesday initially showed a surplus of $1.9million, which excluded some unavoidable expenses that were not included yet.

The surplus incorporated property-tax increases but no pay raises for employees.

Councilman Guy Phillips said he heard the budget forecast would be “favorable.”

“It seems a little gloomy that if we raise taxes and if we don’t give raises ... then we’re barely going to squeak by,” Phillips said. “That’s what it looks like to me.”

Councilwoman Virginia Korte said the city should have a conversation around the property-tax increases, which would raise an estimated $1.5million.

Compared to this year, early projections for the upcoming budget show a slight uptick in sales-tax collections, a vital source of revenue.

Councilwoman Linda Milhaven, citing economic forecasts from Arizona State University’s W.P. Carey School of Business, said the city’s sales-tax projections for retail are “pretty conservative.”

On March 5, staff will outline revenue assumptions to council members, who weighed in on several key issues of the budget Tuesday.

On the expense side, several members said they likely would support pay raises for employees, who received pay-for-performance increases in July.

“For us to not budget any pay-for-performance program, is taking a step backwards as far as our staff and treating our employees for the city respectfully,” Korte said.

Klapp said the city has roughly $200,000 in savings left over from a recent compensation strategy that could go toward raises next year.

Savings from an unreserved fund balance at the end of this fiscal year could provide extra dollars for one-time costs.

The city plans to release the proposed budget March 19.

“We’re going to work on refining some of the estimates as we move forward,” acting City Manager Dan Worth told council members.

Also on Tuesday, Lane expressed concern about a proposal to change the way construction sales taxes are collected across Arizona.

The reform would charge sales tax on raw materials that contractors purchase at checkout, rather than taxing the final price of the project.

According to Smith, if the state switches to the alternative method of taxation, “Scottsdale, as a recipient, would probably get virtually nothing.”

Lane called the proposal “extremely detrimental,” noting that city officials plan to lobby against the proposal.

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